Atul Prakash London
FRANTIC foreign exchange trading after the Swiss National Bank (SNB) scrapped its euro cap on the franc took $100 billion (R1.15 trillion) off the value of Switzerland’s blue chips yesterday, putting them on track for their biggest one-day fall in at least 25 years.
The Swiss SMI index slumped 10 percent, with stocks including Swatch, luxury-goods firm Richemont and cement maker Holcim down between 11 percent and 15 percent in what some traders described as “carnage”. Swatch chief executive Nick Hayek called the SNB’s decision “a tsunami” for Switzerland’s economy.
Swiss-listed shares in offshore drilling contractor Transocean slumped to a record low, while lenders Julius Baer and UBS were down 13 percent and 11 percent respectively.
Weaker equities wiped off about 117 billion Swiss francs (R1.32 trillion) from the SMI share index.
“It’s carnage,” Central Markets Investment Management’s head of trading Darren Courtney-Cook said. “I’m a seller of Europe here.”
The SNB’s shock decision to discontinue the cap against the euro that it introduced on September 6, 2011, to fight recession and deflation pressures sent the Swiss franc soaring by almost 30 percent, a move that rippled through global markets and was seen hurting Swiss firms’ exporting power.
“Equity markets have been shaken out by the Swiss move,” IG analyst David Madden said. “Markets are still struggling to puzzle out the full implications, but the sudden drop in equity markets, as well as in the FX sphere shows that the move caught everyone off guard.”
Mark Haefele, the chief investment officer of Swiss bank UBS, said the SNB’s decision would have a negative impact on the Swiss economy, adding the direct effect on Swiss goods exporters was estimated to be about Sf5bn, equivalent to -0.7 percent of Swiss gross domestic product.
“In my opinion, this damages confidence in the Swiss National Bank that has always been saying that it can keep up the minimum exchange rate,” Alessandro Bee, an economist at Swiss bank Sarasin, said. “I see big risks in this.“
On social media, the move was quickly dubbed “Francogeddon”. The Swiss economy sends more than 40 percent of its exports to the euro zone.
Swiss politician Christian Levrat, the president of the left-wing Social Democrats, called the move “a serious threat for tens of thousands of Swiss jobs”.
The SNB said its limit on the value of the franc had been an exceptional and temporary measure that had protected the economy from serious harm, and although the franc was still high, the overvaluation had declined as a whole since the limit on its value was introduced.
Peter Dixon at Commerzbank said that at a time when Switzerland’s main trading partners were not doing great on the economic front, the last thing it needed was a further impact from a significant rise in the domestic currency.
“That’s going to make life… more difficult for Swiss companies. The export-oriented manufacturers are going to take the biggest hit and cyclical stocks like ABB will be in the firing line,” Dixon said.
ABB shares were down 8.6 percent. – Reuters